Journal of Energy Markets
ISSN:
1756-3607 (print)
1756-3615 (online)
Editor-in-chief: Derek W. Bunn

Optimal management of green certificates in the Swedish–Norwegian market
Need to know
- Stochastic model of green certificate prices in the Swedish-Norwegian market.
- Optimal management of green certificates for a producer of renewable power.
- Stochastic optimal control and dynamic programming with singular controls.
Abstract
We propose and investigate a valuation model for the income of selling tradeable green certificates (TGCs) in the Swedish–Norwegian market, formulated as a singular stochastic control problem. Our model takes into account the production rate of renewable energy from a “typical” plant, the price of TGCs and the cumulative amount of certificates sold. We assume that the production rate has a dynamics given by an exponential Ornstein–Uhlenbeck process, and the logarithmic TGC price has a dynamics given by a Lévy process. For this class of dynamics, we find optimal decision rules for the state variables and a closed-form solution to the control problem. A case study of ICAP prices and wind production data from Denmark backs up our model choice and shows the relevance of this pricing approach.